What is a sidechain? Is the future of blockchain in sidechains? In recent years, blockchain technology has become increasingly attractive to individuals and companies. This is also reflected in the amount of data and transaction rates that blockchains have to handle.
In mid-July 2022, the size of the Bitcoin blockchain is 400 GB. Scalability issues are therefore becoming more pressing. One solution might be to outsource to sidechains, but what are sidechains and how do they work? Let's find out together.
What are sidechains?
A sidechain is an independent blockchain that works independently, but is always bound to the main chain, also known as the parent blockchain.
The connection between the sidechain and the mainchain is achieved through a two-way peg. This connection allows assets to be exchanged between the two chains at a predetermined rate. Blockchains can have many different sidechains.
The sidechain model has been discussed for years. The first idea has been circulating in Bitcoin chat rooms and forums since 2012. However, these are mostly one-way models.
The first company to come up with the idea of a sidechain that could communicate two-way came from the startup Blockstream, centered around Adam Back and Austin Hill.
Back is one of the Bitcoin core developers. In October 2014, they released a white paper of their idea. They see so-called "pegged sidechains" as an opportunity to make blockchains more innovative.
The original purpose was not to increase scalability, but to allow more experimentation with different extensions to the Bitcoin protocol without jeopardizing the integrity of the main chain.
Sidechains and How They Work
The principle of sidechains can be explained with a very everyday example. Most people keep their money in bank accounts.
If person A transfers money to person B, the account movement is recorded. This is similar to transactions on the main chain. However, if A now withdraws money from the bank, initially only the withdrawal of this money is recorded.
In the meantime, what will happen to the money remains unknown, at least for the banks. If person A pays person B in cash, then this is equivalent to a transaction on the sidechain.
If B returns the money back to his account now, the circle is closed and the money is on the main chain, or the bank.
Blockchain works the same way. Users must first send coins to the issuing address. This amount will be frozen so it cannot be used elsewhere at the same time.
After the transaction is completed, confirmation information will be passed between chains. The shorter wait time should bring an extra layer of security.
When this time expires, the corresponding amount of coins will be released onto the sidechain and can now be spent by users.
The reverse path from the sidechain back to the mainchain works the same way, hence the name two-way peg.
At first glance, the advantage of a sidechain is that it offloads the main chain
Advantages of sidechains over blockchain
At first glance, the benefit of sidechains is that they reduce the burden on the main chain. Not every transaction has to go through the main chain. Data throughput is reduced. However, sidechains can do much more than that.
The main advantages of blockchain are:
Interoperability: Different blockchains can communicate with each other through sidechains. The way through the stock exchange will no longer be necessary. For users with multiple cryptocurrencies, it will be much easier to deal with.
Test networks: Especially large blockchain companies such as Bitcoin or Ethereum must be very careful when making changes to the network. One mistake can quickly cost millions of dollars. Sidechains can serve as testnets, testing code changes before committing them to the mainchain.
Security: The sidechain is connected to the main chain, but if one of the two chains is hacked, neither chain is at risk. Therefore, distributing to sidechains can help secure the network to some extent.
Personalization: The side chain does not have to follow the rules of the main chain and can be customized. This gives users the opportunity to develop completely independent chains, depending on their needs.
Anonymity: Only users of the sidechain can track transactions. Only the final result remains on the main chain. This is especially attractive to companies because deals and deals remain hidden from competition.
Overall, sidechains can offer many advantages and new opportunities for blockchain users. But as is often the case with sidechains, there are still a hurdle or two to overcome. The main issues are security concerns and maintaining consensus through proper evidence. Existing proposals are either not fully developed, or each has its own weaknesses. However, developers and researchers believe that these problems can also be solved.
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